A university is trying to decide whether or not to advertise a new post-graduate degree programme. The number of students starting the programme is dependent on economic conditions. If conditions are poor, it is expected that the programme will attract 40 students without advertising. There is a 60% chance that economic conditions will be poor. If economic conditions are good it is expected that the programme will attract only 20 students without advertising. There is a 40% chance that economic conditions will be good.
If the programme is advertised and economic conditions are poor, there is a 65% chance that the advertising will stimulate further demand and student numbers will increase to 50. If economic conditions are good, there is a 25% chance the advertising will stimulate further demand and numbers will increase to 25 students.
The profit expected, before deducting the cost of advertising, at different levels of student numbers are as follows:

The cost of advertising the programme will be $15,000.
Required:
Demonstrate, using a decision tree, whether the programme should be advertised.

• A. Yes, the programme should be advertised as the profit will be $82 000
• B. No, the programme should not be advertised as there will be a loss $92 000
• C. No, the programme should not be advertised as there will be a loss $82 000
• D. Yes, the programme should be advertised as the profit will be $92 000

TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.
What was the material price planning variance for ingredient B?

• A. The material price planning variance - Ingredient B was $54 000 F
• B. The material price planning variance - Ingredient B was $59 000 F
• C. The material price planning variance - Ingredient B was $64 000 F
• D. The material price planning variance - Ingredient B was $57 000 F

A company's budget for the next period shows that it would breakeven at sales revenue of $800,000 and fixed costs of $320,000.
The sales revenue needed to achieve a profit of $200,000 in the next period would be:

• A. $1,400,000
• B. $1,390,000
• C. $1,780,000
• D. $1,300,000
• E. $1,950,000

Explain the advantages of management participation in budget setting and the potential problems that may arise in the use of the resulting budget as a control mechanism.
Select all the correct answers.

• A. A purposes of budgeting is to act as a control mechanism, with actual results being compared against budget.
• B. Managers will not 'empire build' because they don't believe that the size of their budget reflects their importance within the organization.
• C. The participation of managers in the budget setting process has several advantages. Managers are more likely to be motivated to achieve the target if they have participated in setting process has several advantages. managers are more likely to be motivated to achieve the target if they have participated in setting the target.
• D. Participation in budget setting can cause problems; in particular, managers may attempt to negotiate budgets that they feel are easy to achieve which gives rise to "budget padding" or budgetary slack.
• E. Another purpose of a budget is to set targets to motivate managers and optimize their performance.
• F. Participation in budget setting can reduce the information asymmetry gap that can arise when targets are imposed by senior management. Imposed targets are likely to make managers feel demotivated and alienated and result in poor performance.